Originally posted by Metal BrainAll the time.
How often does naked shorting happen? Is the ban on naked shorting being enforced?Is it a big problem?
http://www.nakedshorting.com/
Is the banning of short selling the only way to eliminate the practice?
What do you think?
What ban?
Probably not. It's just part of how the market works.
Of course.
I think it should be allowed, though some regulation is probably necessary.
Why is the banning of all short sales necessary. Why not just ban naked short sales, and regulate to make sure all short sales are... well.. clothed.
On a related topic - Its always bothered me that brokers are allowed to force margin accounts to allow their shares to be loaned for short sale. Even if the account isn't under margin. If I own shares, you'd think I'd have a say in who I loaned them to and when I loaned them.
Originally posted by joneschrIsn't banning short selling the only sure way to eliminate naked shorting?
Why is the banning of all short sales necessary. Why not just ban naked short sales, and regulate to make sure all short sales are... well.. clothed.
On a related topic - Its always bothered me that brokers are allowed to force margin accounts to allow their shares to be loaned. Even if the account isn't under margin.
Originally posted by Metal BrainWhy not just ban all securities trading? That would certainly eliminate the problem.
I think it is a big problem and that most people don't have a clue as to how much it happens.
I think short selling should be banned to eliminate the problem.
The fact this problem is not being addressed shows how stupid most economists are.
I had the same reaction as sh76.
If you believe you can't stop naked short sales without banning short sales, that makes as much sense to me as saying you can't ban named short sales without doing away with the stock market. Either you believe you can regulate trading or you don't.
It seems extreme to me to ban short sales altogether because of naked shorts.
From Wikipedia:
"Several international exchanges have either partially or fully restricted the practice of naked short selling of shares. They include Australia's Australian Securities Exchange,[50] India's Securities and Exchange Board,[51] the Netherlands's Euronext Amsterdam,[52] Japan's Tokyo Stock Exchange,[53] and Switzerland's SWX Swiss Exchange.[54][55]
Japan's naked shorting ban started on November 4, 2008, and was originally scheduled to run until July 2009, but was extended through October of that year.[56][57] Japan's Finance Minister, Shōichi Nakagawa stated, "We decided (to move up the short-selling ban) as we thought it could be dangerous for the Tokyo stock market if we do not take action immediately." Nakagawa added that Japan's Financial Services Agency would be teaming with the Securities and Exchange Surveillance Commission and Tokyo Stock Exchange to investigate past violations of Japanese regulations on stock short-selling. The ban was subsequently extended through October 2010.[58]
The Singapore Exchange started to penalize naked short sales with an interim measure in September, 2008. These initial penalties started at $100 per day. In November, they announced plans to increase the fines for failing to complete trades. The new penalties would penalize traders who fail to cover their positions, starting at $1,000 per day. There would also be fines for brokerages who fail to use the exchange's buying-in market to cover their positions, starting at $5,000 per day. The Singapore exchange had stated that the failure to deliver shares inherent in naked short sales threatened market orderliness.[59]
On May 18, 2010, the German Minister of Finance announced that naked short sales of euro-denominated government bonds, credit default swaps based on those bonds, and shares in Germany's ten leading financial institutions will be prohibited. This ban went into effect that night and was set to expire on March 31, 2011.[60][61] On May 28, German financial market regulator BaFin announced that this ban would be permanent.[62] The ban is effective July 27, 2010.[63]
The International Monetary Fund issued a report in August 2010 saying that the German government's unilateral ban on some kinds of naked shorting succeeded only in impeding the markets. It said the ban “did relatively little to support the targeted institutions’ underlying stock prices, while liquidity dropped and volatility rose substantially.” The IMF said there was no strong evidence that stock prices fell because of shorting.[64]"
So it appears to be restricted/banned in several countries, but it's uncertain what the effect of naked shorting is on the markets and how effective the bans are.
Originally posted by joneschrEither you own the stock or you don't. If you don't you shouldn't be able to sell it. If you do you should only be able to sell it yourself, not someone else.
I had the same reaction as sh76.
If you believe you can't stop naked short sales without banning short sales, that makes as much sense to me as saying you can't ban named short sales without doing away with the stock market. Either you believe you can regulate trading or you don't.
It seems extreme to me to ban short sales altogether because of naked shorts.
What is so hard to understand about that? More importantly, why should you be able sell anything you don't own?
To own or not to own, that is the question.
Originally posted by Metal BrainWhat about options? Selling calls are essentially the same idea as naked shorting. Should be ban selling calls too?
Either you own the stock or you don't. If you don't you shouldn't be able to sell it. If you do you should only be able to sell it yourself, not someone else.
What is so hard to understand about that? More importantly, why should you be able sell anything you don't own?
To own or not to own, that is the question.
People sell speculative investments to people who are willing to risk based on future speculation all the time.
Originally posted by sh76I suppose your broker could profit from your selling call without you knowing it and I'm sure it happens. It doesn't mean it is supposed to though.
What about options? Selling calls are essentially the same idea as naked shorting. Should be ban selling calls too?
People sell speculative investments to people who are willing to risk based on future speculation all the time.
The difference is that nobody but the owner of the stock is supposed to profit from the difference in stock price if there is one. It is illegal isn't it?
You do bring up a good point though. Short selling can result from selling calls. I guess it is hard to eliminate. Kind of like fractional reserve banking is hard to eliminate, but I do think both should be minimized.
Originally posted by Metal BrainI would say that regulating it to the point that short selling/ selling calls can only be done by people/firms with enough money in their accounts/firm reserves to cover the likely loss. Don't ask me how to define likely loss. That's for numbers geeks and people like that.
I suppose your broker could profit from your selling call without you knowing it and I'm sure it happens. It doesn't mean it is supposed to though.
The difference is that nobody but the owner of the stock is supposed to profit from the difference in stock price if there is one. It is illegal isn't it?
You do bring up a good point though. Short sel ...[text shortened]... ike fractional reserve banking is hard to eliminate, but I do think both should be minimized.
Originally posted by Metal BrainBut you do own it - and that's exactly the difference between naked shorting and shorting.
Either you own the stock or you don't. If you don't you shouldn't be able to sell it. If you do you should only be able to sell it yourself, not someone else.
What is so hard to understand about that? More importantly, why should you be able sell anything you don't own?
To own or not to own, that is the question.
With normal shorts you do own the stock you sell. You acquire the stock by getting it from someone who is willing to loan it to you. It's then yours, with a caviat that you agree to give an equivalent amount back eventually, but it's yours. And you can sell it. You just have a separate contract with the original owner that you will reacquire the stock and give it back at a later date. That contract caries risk of great financial loss. But both parties are willing to take that risk.
Your point on ownership is exactly why naked shorts are bad. In that case you ARE selling something you don't own.
So again, I don't understand why you'd throw the baby out with the bathwater and get rid of all shorts.